I ditched corporate America in 1994 and started a management consulting and venture capital firm (http://petercohan.com). I started following stocks in 1981 when I was in grad school at MIT and started analyzing tech stocks as a guest on CNBC in 1998. I became a Forbes contributor in April 2011. My 11th book is "Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision" (http://goo.gl/ygaUV). I also teach business strategy and entrepreneurship at Babson College in Wellesley, Mass.

Why Groupon Is Over and Facebook And Twitter Should Follow

Investors are giving up on Groupon (GRPN) and they’re scrambling for the exits on Facebook (FB) too. Since Twitter is not publicly traded, they can’t get out of that one as quickly.

But social media attracts consumers because of dopamine — and like any drug — those consumers need a bigger dose to get the same effect. Social media’s inability to deliver that is at the root of what makes it hard for it to grow into its lofty valuations. Not only that, but it’s failing to come up with compelling ways to earn a return on spending to turn those consumers into repeat customers.

The list of investors getting out of Groupon shares contains prominent names. They include Andreessen Horowitz, Hedge fund Maverick Capital Ltd., and Fidelity Management & Research Co, according to the Wall Street Journal. Others like Kleiner Perkins Caufield & Byers and Morgan Stanley (MS) are bullish on Groupon, reports the Journal.

Groupon and the whole daily deal business are under pressure because so many participants offer a money-losing proposition to merchants. In June 2011, I wrote that the SEC should spare investors the agony of losing their money when Groupon sold its shares to the public. The SEC did not listen to me (no surprise there); Groupon went public in November 2011, and that day’s Groupon stock buyers are now 82% poorer.

But Groupon’s biggest victims are the small businesses that get suckered in to accepting Groupons. Restaurants lose money on them because consumers flood the restaurants, order very low priced meals, strain waiters and cooks, get lousy service, and never return.

Examples abound. As I wrote in June 2011, a restaurant in Portland, Ore. believes its decision to work with Groupon was its worst business decision ever – costing it $8,000. And according to the New York Times, Muddy’s Coffeehouse –it serves coffee and granola – had to take out a loan to cover its Groupon losses.

Muddy’s gave Groupon customers $24 worth of food and coffee for $12. It paid Groupon half of its revenues, drew in crowds, lost money, and would have shut down were it not for that loan. As owner, Dyer Price, told the Times, “They don’t warn you that you’re going to get hit really hard and that you have to be prepared. We will never, ever do it again.”

Customers and daily deal providers are bolting. UnsubscribeDeals.com — it unsubscribes people from daily deal e-mails – got 7,800 unsubscribers in its first three months and doubled in July, reported the Times. Daily Deal Media reported that in the last six months of 2011, 798 daily deal sites shut down.

I interviewed Ben Edelman, a professor at Harvard Business School, about this. He pointed out there are good daily deal sites. For example, Restaurant.com has been around for over a decade because it creates value for restaurants and consumers. “Restaurants like the fact that it does not require them to pay for the daily deal and that it lets them add restrictions to push business towards slow nights,” said Edelman. By contrast, Groupon tends to disallow such restrictions.

And Edelman believes that while consumers might initially be frustrated that they can’t get the discount on Saturday, the value they’re getting is sufficient that they might be quite happy to try the restaurant on a Thursday. They will likely get better service and perhaps consider coming back to pay full fare in the future.

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Wow, one of the worst articles I’ve read in a long time. The author is not even on Facebook, so how can he analyze the social network or social media? Besides, why does the author even compare Groupon to Facebook in the first place? They are completely different services (and have different business models, to say the least).

It seems like that the author thinks Facebook is made solely for stalking people. He’s wrong. Facebook has its proven value, for example, in finding relevant information from media outlets or even friends. The same goes for Twitter.

Social media is here to stay whether the author like it or not. As for the “productivity” thing, what is that at all? We are on 21st century. Not on 19th. Additionally, the history of communications tells us that media itself has always had a “social” gene. The difference from today’s media to past’s is all about technology and its capability to spread the word in seconds to a large number of people.

Obviously, though, Facebook valuation is inflated. That, however, does not make the company (or its services) useless. Engagement is the key word here. Smart brands use Facebook and Social Media in their favor and build customer communities around the brand, taking part on the online conversation and gathering brand evangelists.

Next time, please, properly research on the services (and companies) you write about. It will make you look a lot less ignorant — if not prevent you from writing such a poor article.

You’re making this broad prognostications, but you’ve never even used Facebook. This is like asking someone who’s never used a telephone what the future of the telecom industry is.

Most people don’t constantly keep all of their friends updated with what they’re up to. Most people have no other central place to have a conversation with their friends while sitting on their home computer. There is a reason Facebook is soon going to hit 1 billion users, which you would realize if you actually used the product instead of assuming that it matches the most negative stereotypes and jokes about it. If your Facebook feed is full of boring stuff that just means your friends are boring.

Facebook may someday be beaten by a competitor but it has a HUGE advantage. All your friends are already on it! Another service will have to blow it out of the water to make headway, and then Facebook will quickly just try to copy it. And Facebook is not just another MySpace. MySpace was always garbage, but demand for some kind of social media was so high it did well anyway. Facebook was the first good social network and makes up around 90% of the time spent on social media. It’s not going anywhere anytime soon based on criticisms people who don’t use it have been making since it had 1 million users.

100% correct about the dopamine high. I deleted all “friends” and use FB for newsfeeds exclusively. Since most organizations are addicted to FB, it is a good way to stay in touch with news, information, and companies that you are interested in.

I was appalled to discover that the author is not only commenting on institutions he does not use, indeed seems to be largely unfamiliar with outside of basic concept, but that absurd reductionism that is uncritically [actually, notably, absent any argument] wedging *dopamine* as the *primary* logistic determination [indeed, almost 'sole' seems implied].

Well, how about:

A [digital] scrapbook that expands fluidly through the years and continuously interconnects with others and their own scrapbooks?

A means to promotion and linking sites and interests.

Networking.

Correspondence between loved ones (which the author bizarrely derides as checking on “status”…giving it an italic sneer). Are only hand-penned ink-to-paper snail-mail letters worthy of celebration?

Discovering new people with naturally complimentary interests, such as with any forum.

Reconnecting with lost affections, in manner so sublimely accomplished it nearly defines this pivotal, very human and very practical advantage to the internet.

Any such system can be abused. I’m sure your great-great-great-grandmother might have sent logorrheic letters about quilting, just as any Facebooker might turn their page into a catalogue of the mundane. That’s a human trait, not a social site mandate.

The potential is there. Many of us are living proof. This author, in a succinct phrase: Does not get it.

And one of the golden rules of writing is “write about what you know”.

Twitter to me seems the most useless, and i wish the FCC would fine news outlet from using Tweets as news stories, and business that try to be Twitter Friendly are the biggest offenders. I hate seeing commercials and billboards with the Twitter and Facebook logo..social media should promote word of mouth advertising.

Back before all the info about Groupon became public it would have seemed they would be hugely profitable with no inventory and delivery costs. Then it became apparent what it takes for Groupon to make a sale, and continue to do so, and that whole illusion fell apart. Groupon is not profitable for the vast majority of merchants. And goes way beyond that. Groupon, at this stage is nothing more than a lead gen engine that is not working… hence the bloated sales force to hard sell, targeting small biz who don’t understand metrics and services vs products due to inability of most to understand their cost of goods sold… and the many consumers who are realizing they can go broke buying discounted goods and services they never use (although people will always buy things at a big discount, but the old adage still holds true… you can’t make up losses per unit with volume). Then there’s the way the founders and backers raped the company and sucked out capital at an unprecedented pre-IPO rate. Making all that money for themselves while losing a bloody fortune. The SEC should be ashamed of themselves for not doing their due diligence, or simply overlooking the obvious, in their rush to try to ignite the IPO market. Now Groupon in their desperation to stem the slide of their valuation while they cook up a viable pivot, lower marketing costs by slashing and burning to make it look like they have turned the corner to profitability. But without the force of their gargantuan marketing and sales effort there is evidence a slowdown in sales. And to make matters worse this long awaited pivot seems to be to exploit all the small business contacts they have made selling a losing lead generation model, and now sell them a suite of business services. Not sure how you justify a multi-billion dollar valuation there… and selling the same folk you took to the cleaners the first time around. Well… guess you can sell anything to anybody if you sell hard enough. Maybe Google can buy them now for a third of what they originally offered and Groupon so foolishly turned down(or less possibly if they wait long enough), and monetize that huge database and sales force selling something that does work. Or possibly Henry Blodget can keep recommending the stock via Business Insider.

…”a study in May 2011 found that Facebook users in the U.S. spend an average of 15 hours and 33 minutes a month on the site. And if that time was spent working instead, those Facebook users could add $1.4 trillion to the U.S. economy.” What if, say, perhaps, those folks are on Facebook on their own ~ personal ~ time. Given the uncertain state of the economy, perhaps they need that extra shot of dopamine just to keep going. Check it out for yourself ~ it may surprise you.